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CFPB: Year in Review & Advance

Posted By USFN, Monday, May 13, 2019

by Lance Olsen
McCarthy & Holthus, LLP
USFN Member (AZ, CA, CO, ID, NM, NV, OR, TX, WA)

Alan Wolf
The Wolf Firm
USFN Member (CA)

To properly review the work of the Consumer Financial Protection Bureau (referred to in this article as the “Bureau”) in 2018, we must start in 2017.

In November 2017, the former director of the CFPB resigned to pursue elected office. On the way out, the former director attempted to appoint his own successor; President Trump however appointed his own temporary head of the CFPB, Mick Mulvaney. Most observers seemed to agree that the Bureau director did not have the authority to name his or her own successor, and thus Mulvaney assumed control of the Bureau as 2017 ends (even though it wasn’t until July 2018 that a lawsuit challenging the authority of Mulvaney to act was finally dismissed).

With the change in leadership came a visible change in approach. As a Congressman, Mulvaney had criticized what he perceived to be a lack of oversight and accountability in the structure and operation of the Bureau. Against this backdrop, a change was observed early on in the focus and direction of regulation.

On January 16, 2018 the Bureau announced that it would engage in a rule making process to reconsider the Payday Rule put forward under prior leadership. The Payday Rule imposes restrictions on certain small loan practices and policies. As most of the provisions of that Payday Rule are not effective until August 2019, the January 2018 announcement was perceived by many as notice of the intent of the new Bureau to act independently of old policy.

In February 2018, the Bureau issued its Strategic Plan for the next five years. Within that plan, one significant change from the prior-issued plan was removal of the reference to the Bureau’s authority to enforce against unfair, deceptive or abusive acts or practices. Suggested in the new plan is a turn away from focus on perceived potential abuses to a protection of free and informed choice. Specifically, the new plan called for “free, innovative, competitive, and transparent consumer finance markets where the rights of all parties are protected by the rule of law and where consumers are free to choose the products and services that best fit their individual needs.”

Also, in February 2018, members of the Office of Fair Lending and Equal Opportunity were transferred to  the Office of the Director and their mission was clarified as a focus on advocacy, coordination and education over enforcement. Whether by coincidence or design, 2018 saw nine reported settlements of consent orders resolving previously filed enforcement actions with one newly filed complaint.

By April 2018, the Bureau issued a “call for evidence to ensure the Bureau is fulfilling its proper and appropriate functions to best protect consumers.” Once again, the call for evidence is viewed as an intent to focus more on protection of choice overactive effort to discover enforcement opportunities and push the envelope of consumer protection.

Finally, in June 2018, shortly before the deadline to nominate a permanent director of the Bureau, the White House nominated Kathy Kraninger, a direct report of Mick Mulvaney at the Office of Management and Budget, for confirmation by the United States Senate. Although not much is known about Kraninger’s views on the appropriate role and direction of the Bureau, those with concerns over Mulvaney’s stewardship have expressed concern over her apparent connection and past work under his tutelage.

Changes in 2019
It’s said that predicting the future is easy, the difficult part is in getting it right. With that admonishment, here is what has happened so far in 2019.

As expected, Kraninger was confirmed as the new Director of the Bureau in December. Since she was chosen as a disciple of Mulvaney, and has absolutely no consumer or financial regulatory experience, her path will most likely be to follow the actions of Mulvaney. However, recent actions have indicated that she does not feel obligated to follow through on all of Mulvaney’s initiatives. One example is the proposed changes to the Consumer Advisory Board.

New Position on Fair Debt Collection Practices Act
The Bureau also evidenced its new position on the Fair Debt Collection Practices Act (“FDCPA”) in filing an amicus brief supporting the position of the foreclosing creditor and its law firm in Obduskey v. Wells Fargo.

In its amicus brief, the Bureau made two main policy arguments. First, it argued that nonjudicial foreclosures are not subject to the FDCPA, except in those limited circumstances where the foreclosure is done where “there is no present right to possession of the property claimed as collateral through an enforceable security interest.” Section 1692f(6)(A).In short, the Bureau took the position that the FDCPA is only applicable if you foreclose where there was no right to foreclose.

Next, the Bureau made a policy argument that if you follow state law, you do not violate the FDCPA. Specifically, the Bureau states:

Nonjudicial foreclosure is ‘the enforcement of [a] security interest’ 15U.S.C. 1692a(6), and filing a notice with a public trustee is undisputedly a necessary step in that process in Colorado. Deeming such activities debt collection could bring the FDCPA into conflict with state law and effectively preclude compliance with state foreclosure procedures. No sound basis exists to assume Congress intended that result.

In a 9-0 opinion, the Supreme Court agreed with the CFPB and industry on holding that one who does no more than enforce security interests does not fall within the definition of a debt collector. It appears likely that in its formal rule making, which as of press time is reportedly set for later in the spring, the Bureau will take the position that the FDCPA has no application to the mortgage servicing industry, as long as there is a right to foreclose under state law and the state laws are followed.

States Will Take Consumer Positions Abandoned by the Bureau; States Will Not Be as Effective as Bureau
Third, it appears that States are ready and willing to take up the consumer positions apparently abandoned by the Bureau but may not be entirely able to — they lack the resources and skills to make the same impact as the Bureau. The push by states to replace the Bureau has evolved into two paths: 1) State Bureau type legislation; and 2) Prosecution of the Bureau’s rules and regulations by state attorneys general.

State bureau type legislation includes the following:


1. Maryland Consumer Financial Act of 2018


2. New Jersey’s existing Division of Consumer Affairs adds an Office of Consumer Protection Established to enforce the enhanced Consumer Fraud Act


3. Pennsylvania Consumer Financial Protection Bureau


 Even without this new legislation, state attorneys general have significant powers to enforce certain types of Federal consumer legislation. For example, Section 1042 of the Consumer Financial Protection Act (CFPA) empowers state attorneys general to bring civil actions to enforce the provisions of the CFPA as well as regulations issued by the Bureau under Title X of Dodd-Frank— including the dreaded provision prohibiting unfair, deceptive or abusive acts or practices (UDAAP).See 12 U.S.C. § 5552 (effective June 29, 2012).

In addition, various federal consumer protection statutes give direct enforcement authority to state attorneys general including the Real Estate Settlement Procedures Act, the Truth in Lending Act, and the Fair Credit Reporting Act. Indeed, when Mulvaney spoke at the National Association of Attorneys General conference in February 2018 he invited the state attorneys general to act under these provisions declaring that he would be “looking to the state regulators and state attorneys general for a lot more leadership when it comes to enforcement.”

While Mulvaney’s statement may be viewed as the Bureau’s nod to the belief that states “know better” how to protect their own consumers, having states take the lead has the practical effect of weakening the enforcement mechanism. By bowing out of the process, the states have lost the power, resources and information provided by the Bureau to conduct joint investigations, coordinate enforcement actions and negotiate joint settlements.

In fact, where states have pursued multi-state enforcement actions, without the Bureau’s involvement, they are often hampered by fewer resources with the result of much smaller penalties against mortgage servicers and other industry players. This trend is likely to continue as states take the lead in pursuing consumer issues.

The Bureau has been a fascinating study in the wide swing of a pendulum. Despite attempts to ameliorate those wide swings, 2019 looks to be a better year than most for a mortgage servicer.

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